Company Quick10K Filing
Quick10K
Aldeyra Therapeutics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$8.03 27 $221
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-06-25 Regulation FD, Other Events, Exhibits
8-K 2019-06-04 Shareholder Vote, Regulation FD, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-03-25 Enter Agreement, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2019-03-08 Earnings, Exhibits
8-K 2019-02-28 Regulation FD, Other Events, Exhibits
8-K 2019-01-24 Enter Agreement, M&A, Sale of Shares, Other Events, Exhibits
8-K 2018-12-28 Enter Agreement, Exhibits
8-K 2018-11-20 Leave Agreement
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-09-26 Regulation FD, Other Events, Exhibits
8-K 2018-09-26 Enter Agreement, Other Events, Exhibits
8-K 2018-09-25 Other Events, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-07-27 Officers, Exhibits
8-K 2018-06-26 Regulation FD, Other Events, Exhibits
8-K 2018-06-07 Shareholder Vote
8-K 2018-02-27 Other Events, Exhibits
PTC PTC 10,240
EME Emcor Group 4,610
CCMP Cabot Microelectronics 3,320
WBT Welbilt 2,310
SPPI Spectrum Pharmaceuticals 1,040
TITN Titan Machinery 378
ANFI Amira Nature Foods 62
CFRX Contrafect 43
EOMN Ethos Media Network 0
CNAB United Cannabis 0
ALDX 2019-03-31
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 aldx-ex311_10.htm
EX-31.2 aldx-ex312_8.htm
EX-32.1 aldx-ex321_9.htm

Aldeyra Therapeutics Earnings 2019-03-31

ALDX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 aldx-10q_20190331.htm 10-Q aldx-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File Number: 001-36332

 

ALDEYRA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1968197

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

131 Hartwell Avenue, Suite 320

 

 

Lexington, MA

 

02421

(Address of principal executive offices)

 

(Zip Code)

 

(781) 761-4904

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to 12(b) of the Act:

 

Title of Class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.001 par value per share

ALDX

The Nasdaq Stock Market, LLC

 

As of May 10, 2019, there were 27,490,551 shares of the registrant’s common stock issued and outstanding.

 


 

Aldeyra Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2019

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements:

3

 

Balance Sheets at March 31, 2019 (Unaudited) and December  31, 2018

3

 

Statements of Operations for the three months ended March  31, 2019 and 2018 (Unaudited)

4

 

Statements of Comprehensive Loss for the three months ended March  31, 2019 and 2018 (Unaudited)

5

 

Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (Unaudited)

6

 

Statements of Cash Flows for the three months ended March  31, 2019 and 2018 (Unaudited)

7

 

Notes to Condensed Consolidated Financial Statements

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

23

ITEM 4.

Controls and Procedures

23

PART II – OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

24

ITEM 1A.

Risk Factors

24

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

ITEM 3.

Defaults Upon Senior Securities

55

ITEM 4.

Mine Safety Disclosures

55

ITEM 5.

Other Information

55

ITEM 6.

Exhibits

55

Signatures

56

 

 

2


 

 

Part I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

ALDEYRA THERAPEUTICS, INC.

BALANCE SHEETS

 

 

 

March 31,

 

 

 

 

 

 

 

2019

 

 

December 31,

 

 

 

(unaudited)

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,297,555

 

 

$

3,357,472

 

Cash equivalent - Reverse Repurchase Agreements

 

 

39,000,000

 

 

$

44,000,000

 

Marketable securities

 

 

37,826,635

 

 

 

46,242,220

 

Prepaid expenses and other current assets

 

 

4,872,067

 

 

 

1,169,594

 

Total current assets

 

 

86,996,257

 

 

 

94,769,286

 

Deferred offering costs

 

 

 

 

 

86,644

 

Debt issuance costs

 

 

538,038

 

 

 

 

Right-of-use assets

 

 

377,920

 

 

 

 

Fixed assets, net

 

 

215,908

 

 

 

235,225

 

Total assets

 

$

88,128,123

 

 

$

95,091,155

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,013,362

 

 

$

3,051,678

 

Accrued expenses

 

 

5,257,071

 

 

 

5,421,498

 

Current portion of operating lease liabilities

 

 

221,112

 

 

 

 

Total current liabilities

 

 

9,491,545

 

 

 

8,473,176

 

Operating lease liabilities, long-term

 

 

156,808

 

 

 

 

Total liabilities

 

 

9,648,353

 

 

 

8,473,176

 

Commitments and contingencies (Notes 14 and 15)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 15,000,000 shares authorized, none

   issued and outstanding

 

 

 

 

 

 

Common stock, voting, $0.001 par value; 150,000,000 authorized

   and 26,910,355 and 26,244,435 shares issued and outstanding, respectively

 

 

26,910

 

 

 

26,244

 

Additional paid-in capital

 

 

232,605,244

 

 

 

225,136,127

 

Accumulated other comprehensive income (loss)

 

 

6,812

 

 

 

(9,224

)

Accumulated deficit

 

 

(154,159,196

)

 

 

(138,535,168

)

Total stockholders’ equity

 

 

78,479,770

 

 

 

86,617,979

 

Total liabilities and stockholders’ equity

 

$

88,128,123

 

 

$

95,091,155

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

ALDEYRA THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

7,848,590

 

 

$

6,600,106

 

Acquired in-process research and development

 

 

6,597,551

 

 

 

 

General and administrative

 

 

2,985,038

 

 

 

1,891,303

 

Loss from operations

 

 

(17,431,179

)

 

 

(8,491,409

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

499,140

 

 

 

122,390

 

Interest expense

 

 

(1,962

)

 

 

(28,044

)

Total other income (expense), net

 

 

497,178

 

 

 

94,346

 

Loss before income taxes

 

 

(16,934,001

)

 

 

(8,397,063

)

Income tax benefit

 

 

1,309,973

 

 

 

 

Net loss

 

$

(15,624,028

)

 

$

(8,397,063

)

Net loss per share - basic and diluted

 

$

(0.58

)

 

$

(0.43

)

Weighted average common shares outstanding - basic and diluted

 

 

27,053,842

 

 

 

19,366,790

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

ALDEYRA THERAPEUTICS, INC.

STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(15,624,028

)

 

$

(8,397,063

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

16,036

 

 

 

1,446

 

Total other comprehensive income

 

$

16,036

 

 

$

1,446

 

Comprehensive loss

 

$

(15,607,992

)

 

$

(8,395,617

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


5


 

ALDEYRA THERAPEUTICS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

Stockholders' Equity

 

 

 

Common Voting Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in Capital

 

 

Other

Comprehensive

Income/(Loss),

net of tax

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, December 31, 2018

 

 

26,244,435

 

 

$

26,244

 

 

$

225,136,127

 

 

$

(9,224

)

 

$

(138,535,168

)

 

$

86,617,979

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,886,089

 

 

 

 

 

 

 

 

 

1,886,089

 

Issuance of common stock in connection

   with Helio Vision, Inc. acquisition

 

 

582,363

 

 

 

582

 

 

 

4,862,149

 

 

 

 

 

 

 

 

 

4,862,731

 

Issuance of common stock, net of

   issuance costs

 

 

83,557

 

 

 

84

 

 

 

720,879

 

 

 

 

 

 

 

 

 

720,963

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

16,036

 

 

 

 

 

 

16,036

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,624,028

)

 

 

(15,624,028

)

Balance, March 31, 2019

 

 

26,910,355

 

 

$

26,910

 

 

$

232,605,244

 

 

$

6,812

 

 

$

(154,159,196

)

 

$

78,479,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

19,137,639

 

 

 

19,138

 

 

 

139,241,635

 

 

 

(17,831

)

 

 

(99,641,923

)

 

 

39,601,019

 

Stock-based compensation

 

 

 

 

 

 

 

 

868,415

 

 

 

 

 

 

 

 

 

868,415

 

Issuance of common stock, net of

   issuance costs

 

 

527,282

 

 

 

527

 

 

 

3,926,859

 

 

 

 

 

 

 

 

 

3,927,386

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,446

 

 

 

 

 

 

1,446

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,397,063

)

 

 

(8,397,063

)

Balance, March 31, 2018

 

 

19,664,921

 

 

$

19,665

 

 

$

144,036,909

 

 

$

(16,385

)

 

$

(108,038,986

)

 

$

36,001,203

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

ALDEYRA THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,624,028

)

 

$

(8,397,063

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Acquired in-process research and development

 

 

6,597,551

 

 

 

 

Deferred taxes

 

 

(1,309,973

)

 

 

 

Stock-based compensation

 

 

1,886,089

 

 

 

868,415

 

Amortization of debt discount – non-cash interest expense

 

 

1,962

 

 

 

3,869

 

Net amortization of premium on debt securities available for sale

 

 

(175,396

)

 

 

9,822

 

Depreciation

 

 

24,242

 

 

 

11,406

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,626,841

)

 

 

(647,931

)

Accounts payable

 

 

358,918

 

 

 

617,926

 

Accrued expenses

 

 

(764,502

)

 

 

(421,037

)

Net cash used in operating activities

 

 

(12,631,978

)

 

 

(7,954,593

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(4,925

)

 

 

(139,006

)

Cash acquired in Helio asset acquisition

 

 

562,362

 

 

 

 

 

Purchases of marketable securities

 

 

(8,392,983

)

 

 

(4,009,513

)

Sales of marketable securities

 

 

17,000,000

 

 

 

8,950,000

 

Net cash provided by investing activities

 

 

9,164,454

 

 

 

4,801,481

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

807,607

 

 

 

4,093,316

 

Debt issuance costs paid in cash

 

 

(400,000

)

 

 

 

Net cash provided by financing activities

 

 

407,607

 

 

 

4,093,316

 

NET (DECREASE)/INCREASE IN CASH

 

 

(3,059,917

)

 

 

940,204

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

47,357,472

 

 

 

20,023,337

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

44,297,555

 

 

$

20,963,541

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Helio acquisition:

 

 

 

 

 

 

 

 

Assets acquired

 

$

75,632

 

 

$

 

Liabilities acquired

 

$

637,994

 

 

$

 

Fair value of securities issued

 

$

4,862,731

 

 

$

 

Debt issuance costs not yet paid

 

$

140,000

 

 

$

 

Right-of-use assets acquired through operating leases

 

$

377,920

 

 

$

 

Offering costs of public offerings not yet paid

 

$

 

 

$

1,020

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

ALDEYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

NATURE OF BUSINESS

Aldeyra Therapeutics, Inc., together with its wholly-owned subsidiaries (the Company or Aldeyra), a Delaware corporation, is developing next-generation medicines to improve the lives of patients with immune-mediated diseases.

The Company’s principal activities to date include raising capital and research and development activities.

2.

BASIS OF PRESENTATION

The accompanying interim unaudited condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s financial statements and related footnotes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 8, 2019. The financial information as of March 31, 2019, the three months ended March 31, 2019 and 2018 is unaudited, but in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented of the results of these interim periods have been included. The balance sheet data as of December 31, 2018 was derived from audited financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

Based on its current operating plan, and not including access to capital under the Company’s credit facility or the Open Market Sales Agreement SM (Jefferies Sales Agreement), the Company believes that its cash, cash equivalents and marketable securities as of March 31, 2019, will be adequate to fund currently anticipated operating expenses through the end of 2020, including the currently planned Phase 3 clinical trials in noninfectious anterior uveitis (the SOLACE trial), SLS (Part 1 of the RESET trial) and dry eye disease (the RENEW trial).  The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all planned research and development activities; commercialize product candidates; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, it will be required to significantly decrease the amount of planned expenditures, and may be required to cease operations.

Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the realization of its business plan and the future operations of the Company.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, including fair value estimates for investments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis. The most significant estimates in the Company’s financial statements relate to accruals, including research and development costs, acquired in-process research and development expense, accounting for income taxes and related valuation allowance and accounting for stock-based compensation and related fair value assessments. Although estimates and assumptions are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

In-process research and development

Assets purchased in an asset acquisition transaction are expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use, provided that the acquired asset did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Acquired in-process research and development payments are immediately expensed in the period in which they are incurred and include upfront payments, as well as transaction fees and subsequent pre-commercial milestone payments. Research and development costs incurred after the acquisition are expensed as incurred.

8


 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02 (ASU 2016-02), Leases. ASU 2016-02 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The Company adopted the provisions of ASU 2016-02 as of January 1, 2019, and the provisions did not have a material impact on the Company’s financial statements.

3.

Helio Vision Acquisition

On January 28, 2019 (the closing date), the Company acquired Helio Vision, Inc. (Helio).  As a result of the acquisition, the Company initially issued an aggregate of 1,150,990 shares of common stock to the former securityholders and an advisor of Helio. The founders of Helio were issued 568,627 shares and non-founders were issued 582,363 shares.  The Helio founders’ shares are subject to vesting based on continued service to the Company over three years from the closing date.  The Company will recognize the expense associated with the founders’ restricted shares as compensation expense as the shares vest over the three-year period.  For the three months ended March 31, 2019, the Company recorded $0.4 million of research and development expense for the founders’ restricted shares vested during the period.  The Company, subject to the conditions of the acquisition agreement, will be obligated to make additional payments to the former securityholders of Helio as follows: (a) $2.5 million of common stock on the date that is 24 months following the closing date (assuming certain technical milestones are met); (b) $10.0 million of common stock following approval by the FDA of a new drug approval application for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the closing date; and (c) $2.5 million of common stock following FDA approval of a new drug application for an indication (other than proliferative vitreoretinopathy) prior to the 12th anniversary of the closing date (the shares of common stock issuable pursuant to the preceding clauses (a) – (c) are referred to herein as the Milestone Shares), provided that in no event shall the Company be obligated to issue more than 5,248,885 shares of common stock. Additionally, in the event of certain change of control or divestitures by the Company, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million.

The Company determined that liability accounting is not required for the Milestone Shares under FASB ASC Topic 480, “Distinguishing Liabilities from Equity” (ASC 480). The Company then determined that the Milestone Shares meet the scope exception from derivative under FASB ASC Topic 815, “Derivatives and Hedging” (ASC 815), from inception of the Milestone Shares through March 31, 2019.  Accordingly, the Milestone Shares are evaluated under FASB ASC Topic 450, “Contingencies” (ASC 450) and the Company will record a liability related to the Milestone Shares if and when the milestones are achieved and the consideration becomes probable. At that time, the Company will record the cost of the Milestone Shares issued to the founders as compensation expense and to the Helio non-founders as in-process research and development expense if there is no alternative future use. No milestones related to the Milestone Shares have been met as of March 31, 2019.

 

The Company assessed the acquisition of Helio under the FASB ASC Topic 805, “Business Combinations” (ASC 805). Under ASC 805, the Company determined that the acquired assets did not constitute a business since substantially all of the assets acquired were related to ADX-2191 and that the transaction would be accounted for as an asset acquisition. The asset and development program acquired from Helio are at an early stage of development and will require a significant investment of time and capital for development. There is no assurance that the Company will be successful in developing such asset, and a failure to successfully develop such asset could diminish the Company’s prospects. Under ASC 805, the asset acquired is considered to have no alternative future uses, since the future economic benefit of the acquired asset at the date of acquisition is highly uncertain. The fair value of the assets was determined using the quoted market price of the Company’s common stock on the closing date, and was fully expensed as in-process research and development.  Additionally, the Company assessed the Helio acquisition under ASC Topic 740, “Income Taxes” (ASC 740). The acquisition resulted in an income tax benefit of $1.3 million and a corresponding increase to acquired in-process research and development expense. The expense resulted from the reduction in the Company’s valuation allowance due to the deferred tax liability created as a result of the book and tax basis difference during the quarter ended March 31, 2019. During the quarter ended March 31, 2019, the Company recorded $6.6 million in in-process research and development expense related to the fair value of consideration given which includes transaction costs and the deferred tax impact of the Helio acquisition.

9


 

4.

NET LOSS PER SHARE

As of March 31, 2019 and 2018, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to the Company’s net loss position.

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Options to purchase common stock

 

 

4,679,542

 

 

 

3,066,856

 

Warrants to purchase common stock

 

 

40,300

 

 

 

60,000

 

Restricted stock units

 

 

495,437

 

 

 

253,272

 

Unvested restricted shares

 

 

568,627

 

 

 

 

Total of common stock equivalents

 

 

5,783,906

 

 

 

3,380,128

 

 

5.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

At March 31, 2019, cash, cash equivalents and marketable securities were comprised of:

 

 

 

Carrying

Amount

 

 

Unrecognized

Gain

 

 

Unrecognized

Loss

 

 

Estimated

Fair Value

 

 

Cash

Equivalents

 

 

Current

Marketable

Securities

 

Cash

 

$

3,095,289

 

 

$

 

 

$

 

 

$

3,095,289

 

 

$

3,095,289

 

 

$

 

Money market funds

 

 

2,202,266

 

 

 

 

 

 

 

 

 

2,202,266

 

 

 

2,202,266

 

 

 

 

Reverse repurchase agreements

 

 

39,000,000

 

 

 

 

 

 

 

 

 

39,000,000

 

 

 

39,000,000

 

 

 

 

U.S. government agency securities

 

 

37,819,823

 

 

 

7,058

 

 

 

(246

)

 

 

37,826,635

 

 

 

 

 

 

37,826,635

 

Available for Sale(1)

 

 

76,819,823

 

 

 

7,058

 

 

 

(246

)

 

 

76,826,635

 

 

 

39,000,000

 

 

 

37,826,635

 

Total cash, cash equivalents and

   current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

44,297,555

 

 

$

37,826,635

 

 

(1)

Available for sale securities are reported at fair value with unrealized gains and losses reported net of taxes, if material, in other comprehensive income.

The contractual maturities of all available for sale securities were less than one year at March 31, 2019.

6.

FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements, establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

10


 

There were no liabilities measured at fair value at March 31, 2019 or December 31, 2018. The following table presents information about the Company’s assets measured at fair value at March 31, 2019 and December 31, 2018:

 

 

 

March 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

2,202,266

 

 

$

 

 

$

 

 

$

2,202,266

 

Reverse repurchase agreements (b)

 

 

 

 

 

39,000,000

 

 

 

 

 

 

39,000,000

 

U.S. government agency securities (b)

 

 

 

 

 

37,826,635

 

 

 

 

 

 

37,826,635

 

Total assets at fair value

 

$

2,202,266

 

 

$

76,826,635

 

 

$

 

 

$

79,028,901

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

1,230,297

 

 

$

 

 

$

 

 

$

1,230,297

 

Reverse repurchase agreements (b)

 

 

 

 

 

44,000,000

 

 

 

 

 

 

44,000,000

 

U.S. government agency securities (b)

 

 

 

 

 

46,242,220

 

 

 

 

 

 

46,242,220

 

Total assets at fair value

 

$

1,230,297

 

 

$

90,242,220

 

 

$

 

 

$

91,472,517

 

 

(a)

Money market funds included in cash and cash equivalents in the consolidated balance sheets, are valued at quoted market prices in active markets.

(b)

Reverse repurchase agreements and U.S. government agency securities are recorded at fair market values, which are determined based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable.

Financial instruments including cash equivalents, clinical trial prepayments to contract research organizations, and accounts payable are carried in the financial statements at amounts that approximate their fair value based on the short maturities of those instruments. The carrying amount of the Company’s term loan under its credit facility approximates market rates currently available to the Company. Marketable securities are carried at fair value.

7.

ACCRUED EXPENSES

Accrued expenses at March 31, 2019 and December 31, 2018 were comprised of:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued compensation

 

$

454,737

 

 

$

1,172,880

 

Accrued research and development

 

 

3,966,881

 

 

 

3,882,313

 

Accrued general & administrative

 

 

835,453

 

 

 

366,305

 

Accrued expenses

 

$

5,257,071

 

 

$

5,421,498

 

 

8.

CREDIT FACILITY

In March 2019, the Company entered into a Loan and Security Agreement with Hercules Capital, Inc. (Hercules) and the several banks and other financial institutions or entities from time to time parties thereto (collectively, referred to as “Lender”), providing for a term loan of up to $60.0 million that is secured by a lien covering all of the Company’s assets, other than the Company’s intellectual property (the “Hercules Credit Facility”). The Loan and Security Agreement provides for an initial term loan advance of up to $5.0 million at the Company’s option, commencing on March 25, 2019 through and including April 15, 2019; three additional term loan advances of up to $15.0 million, at the Company’s option, each available to the Company upon the occurrence of certain funding conditions prior to September 30, 2019, March 31, 2020 and March 31, 2021, respectively; and a final additional term loan advance of up to $10.0 million, at the Company’s option, subject to approval by the Lender’s investment committee. As of March 31, 2019, the Company elected not to draw down capital under the initial term loan advance.

The term loan bears interest at an annual rate equal to the greater of (i) 9.10% and (ii) the prime rate (as reported in the Wall Street Journal or any successor publication thereto) plus 3.10%. The Loan and Security Agreement provides for interest-only payments for twenty-four months, with an option to extend the interest-only period to thirty-six months based upon the achievement of certain milestones and repayment of the aggregate outstanding principal balance of the term loan in monthly

11


 

installments starting upon expiration of the interest only period and continuing through October 1, 2023 (the “Maturity Date”). In addition, the Company paid a commitment charge of $25,000, transaction costs of $140,000, and a fee of $375,000 upon closing and is required to pay a fee of 6.95% multiplied by the aggregate amount of advances under the Loan and Security Agreement at maturity. The fees and transaction costs paid are captured as an asset on the balance and are amortized to interest expense through the Maturity Date.  At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus all fees and other amounts due under the Loan and Security Agreement, including a prepayment charge equal to the following percentage of the principal amount being prepaid: 3% if the term loan is prepaid during the first 24 months following the initial closing and 1.5% if the term loan is prepaid any time thereafter but prior to 36 months.

The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. In addition, the Company granted the Lender the right to purchase up to an aggregate of $2.0 million of the Company’s equity securities, or instruments exercisable for or convertible into equity securities, sold to investors in financings upon the same terms and conditions afforded to such other investors.

 

9.

STOCKHOLDERS’ EQUITY

In December 2018, the Company entered into the Jefferies Sales Agreement with Jefferies LLC (Jefferies), as sales agent, pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of the Company’s common stock, par value $0.001 per share, providing for aggregate sales proceeds of up to $50,000,000. Under the Jefferies Sales Agreement, Jefferies may sell such shares of common stock in privately negotiated transactions with our consent; as block transactions; or by any other method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market or sales made into any other existing trading market for the Company’s common stock, with the Company setting the parameters for the sale of shares thereunder, including the number of shares to be issued, the time period during which sales are requested to be made, any limits on the number of shares that may be sold in any one trading day, and any minimum price below which sales may not be made.  The Jefferies Sales Agreement provides that Jefferies will be entitled to a commission rate of up to 3.0% of the aggregate gross proceeds from the sale of shares. The Company has no obligation to sell any shares under the Jefferies Sales Agreement, and may at any time suspend solicitations and offers under the Jefferies Sales Agreement. From January 1, 2019 through March 31, 2019, the Company sold, at a volume-weighted average price of $10.73, an aggregate of 83,557 shares of common stock and received $0.8 million after deducting commissions related to the Jefferies Sales Agreement.

10.

INCOME TAXES

No provision for federal and state income taxes has been recorded as the Company has incurred losses since inception for tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

In assessing the realizability of net deferred taxes in accordance with ASC 740, Income Taxes (ASC 740), the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the weight of available evidence, primarily the incurrence of net losses since inception, anticipated net losses in the near future, reversals of existing temporary differences and expiration of various federal and state attributes, the Company does not consider it more likely than not that some or all of the net deferred taxes will be realized. Accordingly, a 100% valuation allowance has been applied against net deferred taxes.

Under Section 382 of the Internal Revenue Code of 1986, as amended (Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs) and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Transactions involving the Company’s common stock, even those outside the Company’s control, such as purchases or sales by investors, within the testing period could result in an ownership change. A limitation on the Company’s ability to utilize some or all of its NOLs or credits could have a material adverse effect on the Company’s results of operations and cash flows. Aldeyra has undergone three ownership changes through the year ended December 31, 2018.  However, the Company’s management believes that there is sufficient “Built-In-Gain” to offset the Section 382 limitation generated by such ownership changes. Any future ownership changes, including those resulting from the Company’s recent or future financing activities, may cause the Company’s existing tax attributes to incur additional limitations.

All tax years are open for examination by the taxing authorities for both federal and state purposes.

12


 

The Company accounts for uncertain tax positions pursuant to ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. Accordingly, in the provision for income taxes, the Company recognizes interest accrued related to unrecognized tax benefits and penalties; however, management is currently unaware of any uncertain tax positions.

11.

STOCK INCENTIVE PLAN

The Company has three equity incentive plans. One was adopted in 2004 (2004 Plan) and provided for the granting of stock options and restricted stock awards and generally prescribed a contractual term of seven years. The 2004 Plan terminated in August 2010. However, grants made under the 2004 Plan are still governed by that plan. As of March 31, 2019, options to purchase 21,871 shares of common stock at a weighted average exercise price of $3.24 per share remained outstanding under the 2004 Plan.

The Company approved the 2010 Employee, Director and Consultant Equity Incentive Plan (2010 Plan) in September 2010 to replace the 2004 Plan. The 2010 Plan provided for the granting of stock options and restricted stock awards. The 2010 Plan terminated in May 2014 upon the Company’s initial public offering (Initial Public Offering). However, grants made under the 2010 Plan are still governed by that plan. As of March 31, 2019, options to purchase 413,130 shares of common stock at a weighted average exercise price of $1.58 per share remained outstanding under the 2010 Plan.

The Company approved the 2013 Equity Incentive Plan (2013 Plan) in October 2013. The 2013 Plan became effective immediately on adoption although no awards were to be made under it until the effective date of the registration statement for the Initial Public Offering. The 2013 Plan was amended in June 2016 and June 2018. The 2013 Plan provides for the granting of stock options, restricted stock, stock appreciation rights, stock units, and performance cash awards to certain employees, members of the board of directors and consultants of the Company. On January 1 of each year the aggregate number of common shares that may be issued under the 2013 Plan shall automatically increase by such a number of shares equal to the lower of (a) 6% of the total number of shares of common stock outstanding on the last calendar day of the prior fiscal year, or (b) a number of shares of common stock determined by the Company’s board of directors. As of March 31, 2019, options to purchase 4,244,541 shares of common stock at a weighted average exercise price of $7.13 per share and 495,437 shares of common stock underlying restricted stock units (RSUs) remained outstanding under the 2013 Plan. As of March 31, 2019, there were 540,740 shares of common stock available for grant under the 2013 Plan.

In connection with the Helio acquisition, the Helio founders were issued 568,627 shares of Aldeyra common stock pursuant to the acquisition agreement.  Such shares were not issued from the 2014 Plan.  This common stock is subject to vesting conditions based on continuous service to Aldeyra over three years.  The Company will recognize the expense associated with the Helio founders’ restricted shares as compensation expense as the shares are released over the three-year period.  Note 3 contains additional details on the Helio acquisition.  

The Company recognizes stock-based compensation expense over the requisite service period. The Company’s share-based awards are accounted for as equity instruments. The amounts included in the consolidated statements of operations relating to stock-based compensation associated with the three equity incentive plans are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Research and development expenses

 

$

622,660

 

 

$

351,812

 

General and administrative expenses

 

 

854,597

 

 

 

516,603

 

Total stock-based compensation expense

 

$

1,477,257

 

 

$

868,415

 

 

13


 

Stock Options

The table below summarizes activity relating to stock options under the incentive plans for the three months ended March 31, 2019:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Contractual

Term

 

 

Aggregate

Intrinsic

Value(a)

 

Outstanding at December 31, 2018

 

 

3,570,080

 

 

$

6.18

 

 

 

 

 

 

 

 

 

Granted

 

 

1,109,462

 

 

 

8.05

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2019

 

 

4,679,542

 

 

$

6.62

 

 

 

8.06

 

 

$

11,374,148

 

Exercisable at March 31, 2019

 

 

2,027,783

 

 

$

5.25

 

 

 

6.60

 

 

$

7,661,548

 

 

(a)

The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing price per share of the Company’s common stock on March 31, 2019 of $9.03 and the price of the underlying options.

As of March 31, 2019, unamortized stock-based compensation for all stock options was $12,877,255 and will be recognized over a weighted average period of 3.15 years.

Restricted Stock Units

The table below summarizes activity relating to RSUs for the three months ended March 31, 2019:

 

 

 

Number

of Shares

 

Outstanding at December 31, 2018

 

 

212,297

 

Granted

 

 

283,140

 

Vested/released

 

 

 

Outstanding at March 31, 2019

 

 

495,437

 

 

The weighted-average fair value of RSUs granted was $8.05 per share for the three months ended March 31, 2019. As of March 31, 2019, the outstanding RSUs had unamortized stock-based compensation of $3.1 million with a weighted-average remaining recognition period of 3.48 years and an aggregate intrinsic value of $4.5 million.

Employee Stock Purchase Plan

At March 31, 2019, the Company had 631,216 shares available for issuance under the 2016 Employee Stock Purchase Plan (2016 ESPP). A summary of the weighted-average grant-date fair value, shares issued and total stock-based compensation expense recognized related to the 2016 ESPP as of March 31, 2019 and 2018 are as follows:

 

 

Three Months ended March 31,

 

 

2019

 

2018

 

Weighted-average grant-date fair value per share

$

3.12

 

$

2.63

 

Total shares issued

 

 

 

 

Total stock-based compensation expense

$

36,527

 

$

14,510

 

 

12.

STOCK PURCHASE WARRANTS

In connection with the Initial Public Offering, the Company issued the underwriters of the offering warrants to purchase up to 60,000 shares of common stock. The warrants are exercisable beginning on May 1, 2015 for cash or on a cashless basis at a per share price of $10.00. As of March 31, 2019, 40,300 warrants were outstanding and such warrants expired unexercised on May 1, 2019 pursuant to their terms.

 

13.

LEASES

 

The Company currently leases an office used to conduct business.  The exercise of lease renewal options is at our discretion and the renewal to extend the lease terms are not included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. As our lease does not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

14


 

As of March 31, 2019, the Company recognized a Right-Of-Use (“ROU”) asset with a corresponding operating lease liability of $0.4 million based on the present value of the minimum rental payments as a result of adoption of ASC Topic 842. The weighted average discount rate used for leases as of March 31, 2019 is 9.1%. The weighted average lease term as of March 31, 2019 is 1.75 years. The operating lease expense for the three months ended March 31, 2019 was $53,310.  Maturities and balance sheet presentation of our lease liabilities for all operating leases as of March 31, 2019 is as follows:

 

2019

 

$

171,824

 

2020

 

 

237,671

 

Total Lease Payments

 

 

409,495

 

Less effect of discounting:

 

 

(31,575

)

Present value of lease liabilities

 

$

377,920

 

Current operating lease liabilities

 

$

221,112

 

Operating lease liabilities, long-term

 

 

156,808

 

Total

 

$

377,920

 

The Company’s gross future minimum payments under all non-cancelable operating leases as of December 31, 2018, are:

 

 

 

Total

 

 

2019

 

 

2020

 

 

2020

 

 

2021

 

Operating lease obligations

 

$

465,991

 

 

$

228,320

 

 

$

237,671

 

 

$

 

 

$

 

 

 

14.

LEGAL PROCEEDINGS

 

In the ordinary course of its business, the Company may be involved in various legal proceedings involving contractual and employment relationships, patent or other intellectual property rights, and a variety of other matters. The Company is not aware of any pending legal proceedings that would reasonably be expected to have a material impact on the Company’s financial position or results of operations

15.

COMMITMENTS AND CONTINGENCIES

Other than as set forth in Notes 3 and 8, there have been no material changes to the Company’s commitments and contingencies from the information provided in Note 12, Commitments and Contingencies, of the Notes to the Financial Statements, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 which was filed with the SEC on March 8, 2019.  

15


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

Various statements throughout this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as, but not limited to, “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “design,” “might,” “objective,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors which could cause actual results to differ include, but are not limited to:

 

the timing of enrollment, commencement and completion of our clinical trials;

 

the timing and success of preclinical studies and clinical trials conducted by us and our development partners;

 

delay in or failure to obtain regulatory approval of our product candidates;

 

the ability to maintain regulatory approval of our product candidates, and the labeling for any approved products;

 

the risk that prior results, such as signals of safety, activity or durability of effect, observed from preclinical or clinical trials, will not be replicated or will not continue in ongoing or future studies or trials involving our product candidates;

 

the scope, progress, expansion, and costs of developing and commercializing our product candidates;

 

uncertainty as to our ability to commercialize (alone or with others) our product candidates following regulatory approval, if any;

 

the size and growth of the potential markets and pricing for our product candidates and the ability to serve those markets;

 

our expectations regarding our expenses and revenue, the sufficiency or use of our cash resources and needs for additional financing;

 

the rate and degree of market acceptance of any of our product candidates;

 

our expectations regarding competition;

 

our anticipated growth strategies;

 

our ability to attract or retain key personnel;

 

our limited sales and marketing infrastructure;

 

our ability to establish and maintain development partnerships;

 

our ability to successfully integrate acquisitions into our business;

 

our expectations regarding federal, state and foreign regulatory requirements;

 

regulatory developments in the United States and foreign countries;

 

our ability to obtain and maintain intellectual property protection for our product candidates; and

 

the anticipated trends and challenges in our business and the market in which we operate.

All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).

16


 

We encourage you to read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” as well as our unaudited financial statements contained in this quarterly report on Form 10-Q. We also encourage you to read our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 8, 2019 (Annual Report), which contains a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in our Annual Report, other unknown or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that we file with the SEC from time to time, including Forms 10-Q, 8-K and 10-K, which may supplement, modify, supersede or update those risk factors. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that our results will lead to the consequences that we expect. Accordingly, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Overview

Aldeyra Therapeutics, including its wholly-owned subsidiaries (we, us or the Company) is a biotechnology company devoted to developing and commercializing next-generation medicines to improve the lives of patients with immune-mediated diseases. Our lead product candidate, reproxalap, is a first-in-class treatment in late-stage development for dry eye disease (DED), allergic conjunctivitis (AC), noninfectious anterior uveitis (NAU) and Sjögren-Larsson Syndrome (SLS). We have additional product candidates in development for proliferative vitreoretinopathy and other retinal diseases, post-transplant lymphoproliferative disease, autoimmune disease, metabolic disease and cancer.  We currently intend to commercialize our products directly or through collaborations. None of our product candidates have been approved for sale in the United States or elsewhere.

Our lead product candidate reproxalap is a RASP (reactive aldehyde species) inhibitor that has been shown to diminish ocular inflammation and has demonstrated statistically significant and clinically relevant improvements across an aggregate of five Phase 2 clinical trials in DED, AC, and NAU and one Phase 3 clinical trial in AC. In a sixth Phase 2 clinical trial, reproxalap demonstrated statistically significant and clinically relevant improvements in ichthyosis (a severe skin disorder) caused by SLS, a rare RASP-mediated disease with no approved therapy. There is a growing body of clinical evidence supporting the potential of RASP inhibition as a new and differentiated mechanism of action across a myriad of diseases with unmet medical need. We have discovered and are developing two additional RASP inhibitors, ADX-103 and ADX-629, for the treatment of retinal disease and autoimmune disease, respectively. Additionally, in February 2018, we announced a partnership with Janssen, a Johnson & Johnson company, to develop RASP inhibitors for systemic inflammatory diseases.

As we continue to execute on our strategy of expanding our product candidate pipeline, we intend to license or acquire new immune-modulating approaches with novel therapeutic potential. In January 2019, we acquired Helio Vision, Inc. (Helio) and thereby obtained rights to ADX-2191, an intravitreal DHFR inhibitor (methotrexate) for the prevention of proliferative vitreoretinopathy, a serious sight-threatening retinal disease with no approved treatment. In addition, in December 2016, we in-licensed the clinical-stage product candidate ADX-1612 (investigated in oncology under the name ganetespib) and ADX-1615 (an oral pro-drug of ADX-1612), both of which are epichaperome inhibitors and represent  a mechanistically differentiated approach for the potential treatment of a number of inflammatory diseases.

In the future, we may enter into additional partnerships that facilitate the development and commercialization of our product candidates. All of our development timelines may be subject to adjustment depending on recruitment rate, regulatory review, preclinical and clinical results, funding, and other factors that could delay the initiation, completion, or reporting of clinical trials.

We have no products approved for sale. We will not receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize such products or until we potentially enter into agreements with third parties for the development and commercialization of product candidates. If our development efforts for any of our product candidates result in regulatory approval or we enter into collaboration agreements with third parties, we may generate revenue from product sales or from such third parties. We have primarily funded our operations through the sale of our convertible preferred stock, common stock, convertible promissory notes, warrants and borrowings under our debt facilities.

In December 2018, we entered into an Open Market Sale Agreement SM (Jefferies Sales Agreement) with Jefferies LLC (Jefferies), as sales agent, pursuant to which we could offer and sell, from time to time through Jefferies, shares of our common stock, par value $0.001 per share, providing for aggregate sales proceeds of up to $50,000,000. Under the Jefferies Sales Agreement, Jefferies may sell such shares of common stock in privately negotiated transactions with our consent; as block transactions; or by any other method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market or sales made into any other existing trading market for our common stock, with us setting the parameters for the sale of shares thereunder, including the number of shares to be issued, the time period during which sales are requested to be made, any limits on the number of shares that may be sold in any one trading day, and any minimum price below which sales may not be made. The Jefferies Sales Agreement provides that Jefferies will

17


 

be entitled to a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of shares.  We have no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitations and offers under the Jefferies Sales Agreement.  From January 1, 2019 through March 31, 2019, we sold, at a volume-weighted average price of $10.73, an aggregate of 83,557 shares of common stock and received $0.8 million after deducting commissions related to the Jefferies Sales Agreement.  

On January 28, 2019 (the closing date), we acquired Helio Vision, Inc. (Helio), a Delaware corporation.  As a result of the acquisition, we initially issued an aggregate of 1,150,990 shares of common stock to the former securityholders and an advisor of Helio. The founders of Helio were issued 568,627 shares and non-founders were issued 582,363 shares.  The Helio founders’ shares are subject to vesting based on continued service to us over three years from the closing date.  We will recognize the expense associated with the founders’ restricted shares as compensation expense as the shares vest over the three-year period.  We, subject to the conditions of the acquisition agreement, will be obligated to make additional payments to the former securityholders of Helio as follows: (a) $2.5 million of common stock on the date that is 24 months following the closing date (assuming certain technical milestones are met); (b) $10.0 million of common stock following approval by the U.S. Food and Drug Administration (FDA) of a new drug application for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the closing date; and (c) $2.5 million of common stock following FDA approval of a new drug application for an indication (other than proliferative vitreoretinopathy) prior to the 12th anniversary of the closing date, provided that in no event shall we be obligated to issue more than 5,248,885 shares of common stock. Additionally, in the event of certain change of control or divestitures by us, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million.

In March 2019, we entered into the Hercules Credit Facility, which provides for a term loan of up to $60 million. The loan agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject to customary exceptions.  The credit facility is described in Note 8 to the notes to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.  The Company is under no obligation to draw down any capital from the facility.

We will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of our product candidates, and we may in-license, acquire, or invest in complementary businesses or products. In addition, contingent on capital resources, we may augment, diminish, or otherwise modify the clinical development plan described herein.

Research and development expenses

We expense all of our research and development expenses as they are incurred. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred. Research and development expenses primarily include:

 

non-clinical development, preclinical research, and clinical trial and regulatory-related costs;

 

expenses incurred under agreements with sites and consultants that conduct our clinical trials; and

 

employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.

We expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future non-clinical, preclinical and clinical development programs. Our research and development expenditures are subject to numerous uncertainties in terms of both their timing and total cost to completion. We expect to continue to develop stable formulations of our product candidates, test such formulations in preclinical studies for toxicology, safety and efficacy and to conduct clinical trials for each product candidate. We anticipate funding clinical trials for our product candidates ourselves, but we may engage collaboration partners at certain stages of clinical development. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials by us or our future collaborators may take several years or more, the length of time generally varying with the type, complexity, novelty and intended use of a product candidate. The costs of clinical trials may vary significantly over the life of a project owing to but not limited to the following:

 

per patient trial costs;

 

the number of sites included in clinical trials;

 

the countries in which clinical trials are conducted;

 

the length of time required to enroll eligible patients;

18


 

 

the design of clinical trials;

 

the cost of drug manufacturing;

 

the number of patients that participate in clinical trials;

 

the number of doses that patients receive;

 

the cost of vehicle or active comparative agents used in clinical trials;

 

the drop-out or discontinuation rates of patients;

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

the duration of patient follow-up;

 

the phase of development of our product candidates; and

 

the efficacy and safety profile of our product candidates.

Included in Research and Development are expenses associated with asset acquisitions.  Assets purchased in an asset acquisition transaction are expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use. Acquired in-process research and development payments are immediately expensed and include upfront payments, as well as transaction fees and subsequent milestone payments. Development costs incurred after the asset acquisition are expensed as incurred.

We do not expect reproxalap and our other product candidates to be commercially available, if at all, for the next several years.

General and administrative expenses

Our general and administrative expenses consisted primarily of payroll expenses, benefits, and stock-based compensation for our full-time employees during the three months ended March 31, 2019 and 2018. Other general and administrative expenses include professional fees for auditing, tax, and legal services including patent related costs. We expect that general and administrative expenses will increase in the future as we expand our operating activities and continue to incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and SEC requirements. These increases will likely include higher consulting costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums, and fees associated with investor relations.

Total other income (expense)

Total other income (expense) consists primarily of interest income we earn on interest-bearing accounts and interest expense incurred on our outstanding debt.

Comprehensive loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources. For the three months ended March 31, 2019, comprehensive loss is equal to our net loss of $15.6 million and an unrealized gain on marketable securities of $16,000. For the three months ended March 31, 2018, comprehensive loss is equal to our net loss of $8.4 million and an unrealized gain on marketable securities of $1,000.

Critical Accounting Policies

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.  While our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our audited financials in our Annual Report on Form 10-K for the year ended December 31, 2018, not all of these significant accounting policies, however, require that we make estimates and assumptions that we believe are critical accounting policies.

19


 

Other than the policy below, there have been no additional significant changes in our critical accounting policies including estimates, assumptions, and judgments as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 8, 2019.

In-process research and development

Assets purchased in an asset acquisition transaction are expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use, provided that the acquired assets did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Acquired in-process research and development payments are immediately expensed in the period in which they are incurred and include upfront payments, as well as transaction fees and subsequent pre-clinical milestone payments. Research and development costs incurred after the acquisition are expensed as incurred.

Results of Operations

We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, including the progress of our research and development efforts, the timing and outcome of clinical trials, and regulatory requirements. Our limited operating history makes predictions of future operations difficult or impossible. Since our inception, we have incurred significant losses.

Three months ended March 31, 2019 compared to three months ended March 31, 2018

Research and development expenses. Research and development expenses were $7.8 million for the three months ended March 31, 2019, compared to $6.6 million for the three months ended March 31, 2018. The increase of $1.2 million is primarily related to the increases in our external research and development expenditures, including clinical, manufacturing and pre-clinical activities.  

General and administrative expenses. General and administrative expenses were $3.0 million for the three months ended March 31, 2019, compared to $1.9 million for the three months ended March 31, 2018. The increase of $1.1 million is primarily related to an increase in personnel costs, including stock-based compensation, and legal costs.

Acquired in-process research and development expenses.  Acquired in-process research and development expenses were $6.6 million for the three months ended March 31, 2019. We did not have acquired in-process research and development expense for the three months ended March 31, 2018. The increase of $6.6 million is related to the in-process research and development expenses associated with the January 28, 2019 acquisition of Helio.  We determined that the assets acquired from Helio did not constitute a business since substantially all of the assets acquired were related to ADX-2191 and that the transaction would be accounted for as an asset acquisition. As the asset and development program acquired from Helio are at an early stage of development and determining the future economic benefit of the acquired assets at the date of acquisition is highly uncertain, the fair value of the assets was fully expensed as in-process research and development. During the three months ended March 31, 2019, we recorded $6.6 million of acquired in-process research and development expense related to the fair value of consideration given which includes transaction costs.

Other income (expense). Total other income (expense), net was $497,178 and $94,346 for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019 and 2018, other income (expense) primarily consisted of interest income, which was partially offset by interest expense related to our credit facility.

Liquidity and Capital Resources

We have funded our operations primarily from the sale of equity securities and convertible equity securities. Since inception, we have incurred operating losses and negative cash flows from operating activities, and have devoted substantially all of our efforts towards research and development. At March 31, 2019, we had total stockholders’ equity of approximately $78.5 million, and cash, cash equivalents, and marketable securities of $82.1 million. During the three months ended March 31, 2019, we had a net loss of approximately $15.6 million. We expect to generate operating losses for the foreseeable future.

In October 2018, we closed an underwritten public offering in which we sold an aggregate of 5,250,000 shares of common stock. The net proceeds of the offering were $67.6 million, after deducting underwriting discounts, commissions, and other offering expenses payable by us.

20


 

In December 2018, we entered into an Open Market Sale Agreement SM (Jefferies Sales Agreement) with Jefferies LLC (Jefferies), as sales agent, pursuant to which we could offer and sell, from time to time through Jefferies, shares of our common stock, par value $0.001 per share, providing for aggregate sales proceeds of up to $50,000,000. Under the Jefferies Sales Agreement, Jefferies may sell such shares of common stock in privately negotiated transactions with our consent; as block transactions; or by any other method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market or sales made into any other existing trading market for our common stock, with us setting the parameters for the sale of shares thereunder, including the number of shares to be issued, the time period during which sales are requested to be made, any limits on the number of shares that may be sold in any one trading day, and any minimum price below which sales may not be made. The Jefferies Sales Agreement provides that Jefferies will be entitled to a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of shares.  We have no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitations and offers under the Jefferies Sales Agreement.  From January 1, 2019 through March 31, 2019, we sold, at a volume-weighted average price of $10.73, an aggregate of 83,557 shares of common stock and received $0.8 million after deducting commissions related to the Jefferies Sales Agreement.  

In March 2019, we entered into the Hercules Credit Facility, pursuant to which a term loan of up to an aggregate principal amount of $60.0 million may be made available to us. The Loan Agreement provides for an initial term loan advance of up to $5.0 million at our option, commencing on March 25, 2019 through and including April 15, 2019; three additional term loan advances of up to $15.0 million, at our option, each available to us upon the occurrence of certain funding conditions prior to September 30, 2019, March 31, 2020 and March 31, 2021, respectively; and a final additional term loan advance of up to $10.0 million, at our option, subject to approval by Lender’s investment committee. The loan agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject to customary exceptions. As of March 31, 2019, no amount was outstanding under the Hercules Credit Facility.

Based on our current operating plan, and not including access to capital under our credit facility or the Jefferies Sales Agreement, we believe that our cash, cash equivalents and marketable securities as of March 31, 2019, will be adequate to fund our currently anticipated operating expenses through the end of 2020, including the currently planned Phase 3 clinical trials in noninfectious anterior uveitis (the SOLACE trial), SLS (Part 1 of the RESET trial) and dry eye disease (the RENEW trial).  We will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of our planned research and development activities; commercialize our product candidates; or conduct any substantial, additional development requirements requested by the FDA. At this time, due to the risks inherent in the drug development process, we are unable to estimate with any certainty the costs we will incur in the continued clinical development of reproxalap and our other product candidates. Subsequent trials initiated at a later date will cost considerably more, depending on the results of our prior clinical trials, and feedback from the FDA or other third parties. Accordingly, we will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

 

the progress, costs, results of, and timing of our clinical development program for reproxalap and our other product candidates, including our current and planned clinical trials;

 

the need for, and the progress, costs, and results of any additional clinical trials of reproxalap or our other product candidates that we may initiate based on the results of our planned clinical trials or discussions with the FDA, including any additional trials the FDA or other regulatory agencies may require evaluating the safety of reproxalap and our other product candidates;

 

the outcome, costs, and timing of seeking and obtaining regulatory approvals from the FDA, and any similar regulatory agencies;

 

the timing and costs associated with manufacturing reproxalap and our other product candidates for clinical trials and other studies and, if approved, for commercial sale;

 

our need and ability to hire additional management, development, and scientific personnel;

 

the cost to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, filing, prosecuting, defending, and enforcing of any patents or other intellectual property rights;

 

the timing and costs associated with establishing sales and marketing infrastructure;

 

market acceptance of reproxalap and our other product candidates;

21


 

 

the costs of acquiring, licensing, or investing in additional businesses, products, product candidates, and technologies; and

 

our need to remediate any material weaknesses and implement additional internal systems and infrastructure, including financial and reporting systems.

We may need or desire to obtain additional capital to finance our operations through debt, equity, or alternative financing arrangements. We may also seek capital through collaborations or partnerships with other companies. The issuance of debt could require us to grant additional liens on certain of our assets that may limit our flexibility. If we raise additional capital by issuing equity securities, the terms and prices for these financings may be much more favorable to the new investors than the terms obtained by our existing stockholders. These financings also may significantly dilute the ownership of our existing stockholders. If we are unable to obtain additional financing, we may be required to reduce the scope of our future activities which could harm our business, financial condition, and operating results. There can be no assurance that any additional financing required in the future will be available on acceptable terms, if at all.

We will continue to incur costs as a public company, including, but not limited to, costs and expenses for directors fees; increased directors and officers insurance; investor relations fees; expenses for compliance with the Sarbanes-Oxley Act of 2002 and rules implemented by the SEC and Nasdaq, on which our common stock is listed; and various other costs. The Sarbanes-Oxley Act of 2002 requires that we maintain effective disclosure controls and procedures and internal controls.

The following table summarizes our cash flows for the three months ended March 31, 2019 and 2018:

 

 

 

Three Months ended March 31,

 

 

 

2019